Living in state of delusion

Treasurer Bill Lockyer raised eyebrows last week by arguing in a newspaper column that “California isn’t broken,” but it is not allaying the fears of the state’s hard-pressed taxpayers. If California’s top financial official is in deep denial about the state’s precarious situation, then it is time for the rest of us to be very concerned indeed.

Jointly written by Lockyer and Stephen Levy, a Palo Alto economist and longtime advocate for higher taxes, the piece dismissed criticisms that California has a hostile business climate. Our budgetary problems and the nation’s highest unemployment rate are not the result of government policy, in Lockyer and Levy’s view, but “have been caused by the devastation visited on our revenue base by the recession.”

Democratic leaders do not see any fundamental problems in the way the state spends tax dollars or regulates the economy. There is nothing going on that will not be fixed by an economic recovery and higher tax rates, in their view. Lockyer and Levy apparently believe that incentives and disincentives do not matter.

California has the nation’s eighth-highest corporate tax rates, the third-highest top personal income tax rate, and the highest state and local sales taxes in the country. Except for property taxes (32nd, thanks to Proposition 13), California is at or among the worst in virtually every tax and regulatory measure.

As proof of their rosy scenario, the authors offer that there is “no chance” California will default on its bond payments. Well, yeah. Just because California is not about to default does not mean that its government is a model of efficiency. Their column fails to mention the state’s massive unfunded pension liabilities or its retiree health obligations, which pose long-term financial threats to the state.

The Lockyer/Levy column criticizes the “echo chamber of insults” that national writers and California critics have directed our state’s way. But Levy’s Center for Continuing Study of the California Economy and other liberal think tanks have created their own echo chamber of denial. They argue that companies are not leaving California while steadfastly ignoring the obvious: While few large corporate entities pick up stakes and move their headquarters elsewhere, these companies expand elsewhere.

“CEOs like to live in California,” said Jack Stewart, president of the California Manufacturers and Technology Association. “It’s nice to have a corporate headquarters in Silicon Valley or San Diego. But they do their manufacturing someplace else.”

The state’s high unemployment rate “is largely due to a bleak time for the construction industry,” according to the column. Here again they neglect the obvious. California was ground zero for the bursting housing bubble. But the housing bust was far more pronounced in California than most other places. Basically, when demand went sky-high, highly regulated states made it difficult for builders to respond to that demand, thus increasing prices for the existing housing stock.

In the Lockyer/Levy view, none of these problems is caused by government policy, only by a bad economy and by the state’s voters, who need to “assume more responsibility for deciding what they want government to do and how much they’re willing to pay for public services.”

Translation: Government is doing a great job in California, but voters need to decide to pay higher taxes!